Express Scripts 2015 Annual Report Download - page 68

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Express Scripts 2015 Annual Report
acquisition accounting for the acquisition of Medco of $2.4 million in 2013. This resulted in $110.2 million and $116.7 million
of accrued interest and penalties in our consolidated balance sheet at December 31, 2015 and 2014, respectively.
During 2015, we reached final settlement on various state examinations. The state settlements resulted in a reduction
to our unrecognized tax benefits of $14.3 million, of which an immaterial amount impacted our effective tax rate. In addition,
as a result of these settlements, we have also reduced our prior year tax positions by $56.8 million, which impacted our
effective tax rate. The Internal Revenue Service (“IRS”) is currently examining ESI’s 2010 and 2011 and Express Scripts’s
combined 2012 consolidated United States federal income tax returns. Our federal income tax audit uncertainties primarily
relate to both the valuation and timing of deductions, while various state income tax audit uncertainties primarily relate to the
attribution of overall taxable income to those states. We have taken positions in certain taxing jurisdictions for which it is
reasonably possible the total amounts of unrecognized tax benefits may decrease up to $40.0 million within the next twelve
months due to the conclusion of various examinations as well as lapses in various statutes of limitations.
We are currently pursuing an approximate $531.0 million potential tax benefit related to the disposition of PolyMedica
Corporation (Liberty) which was sold in 2012. No net benefit has been recognized. A net benefit may become realizable in the
future; however, we cannot predict with any certainty the amount or timing of realization.
8. Common stock
Accelerated share repurchases. In April 2015, as part of our previously announced share repurchase program, we
entered into an agreement to repurchase shares of our common stock for an aggregate initial payment (the “prepayment
amount”) of $5,500.0 million (the “2015 ASR Program”) under an accelerated share repurchase agreement (the “2015 ASR
Agreement”). Under the terms of the 2015 ASR Agreement, upon payment of the prepayment amount, we received an initial
delivery of 55.1 million shares of our common stock at a price of $84.79 per share, which represented, based on the closing
share price of our common stock on Nasdaq on April 29, 2015, approximately 85% of the prepayment amount. The final
purchase price per share (the “forward price”) and the final number of shares received was determined using the arithmetic
mean of the daily volume-weighted average price per share of our common stock (the “VWAP”) over the term of the 2015 ASR
Program, less a discount granted under the 2015 ASR Agreement. In January 2016, we settled the 2015 ASR Agreement and
received 9.1 million additional shares, resulting in a total of 64.2 million shares received under the 2015 ASR Agreement. For
the year ended December 31, 2015, the 9.1 million shares are not included in the calculation of diluted weighted-average
common shares outstanding because the effect is anti-dilutive.
The 2015 ASR Agreement was accounted for as an initial treasury stock transaction and a forward stock purchase
contract. We recorded an increase to treasury stock of $4,675.0 million and a decrease to additional paid-in capital of $825.0
million in our consolidated balance sheet. The $825.0 million recorded in additional paid-in capital was reclassified to treasury
stock upon completion of the 2015 ASR Program in January 2016 (see Note 15 - Subsequent event). The forward stock
purchase contract was classified as an equity instrument and was deemed to have a fair value of zero at the effective date of the
2015 ASR Agreement. The initial delivery of shares resulted in an immediate reduction of the outstanding shares used to
calculate the weighted-average common shares outstanding for basic and diluted net income per share on the effective date of
the 2015 ASR Agreement.
Treasury share repurchases. We repurchased 55.1 million, 62.1 million and 60.4 million shares for $4,675.0 million,
$4,642.9 million and $3,905.3 million during the years ended December 31, 2015, 2014 and 2013, respectively. In December
2015, the Board of Directors of the Company approved an increase in the authorized number of shares that may be repurchased
under the share repurchase program, originally announced in 2013, by an additional 60.0 million shares, for a total
authorization of 265.0 million shares (including shares previously purchased, as adjusted for any subsequent stock split, stock
dividend or similar transaction), of our common stock. As of December 31, 2015, there were 88.6 million shares remaining
under the share repurchase program. There is no limit on the duration of the share repurchase program. Additional share
repurchases, if any, will be made in such amounts and at such times as we deem appropriate based upon prevailing market and
business conditions and other factors.
9. Employee benefit plans and stock-based compensation plans
Retirement savings plans. We sponsor a retirement saving plan (“401(k) Plan”) under Section 401(k) of the Internal
Revenue Code for substantially all of our full-time employees and part-time employees. Under the 401(k) Plan, eligible
employees may elect to contribute up to 50% of their salary, and we match up to 6% of the employees’ compensation
contributed to the 401(k) Plan for substantially all employees after one year of service.